Recent legal decisions have elicited spirited discussion in Silicon Valley coffee rooms and the virtual hallways of Internet newsgroups. Although the jury's decision on the AMD/Intel suit put smiles on the faces of BMW and Jaguar salesmen who ring AMD headquarters, and 2LiveCrew fans are pretty happy over the Supreme Court's decision on "Pretty Woman," neither case evoked the unbridled glee that followed the verdict in the Stac vs. Microsoft trial.
Microsoft's dominant position in the software industry and ability to compete effectively in many markets (when will Windows for Cuisinarts be released?) increasingly provokes strong emotions among smaller companies when the Redmond giant has an occasional setback. The Stac trial was one in which the "Evil Empire" got a $120 million comeuppance (Microsoft's $13.6 million judgement against Stac for trade-secret misappropriation notwithstanding).
In his "Undocumented Corner" column (DDJ, May 1994), Andrew Schulman analyzes the implications of the Stac decision with respect to reverse engineering and undocumented interfaces. Here, I'll focus on its implications regarding software patents. In particular, the Stac case doesn't follow the romantic notions that some may have of the brave, rugged inventor prevailing against the evil (or perhaps merely venal) corporation. Regardless of how you feel about Microsoft, this case is not so much a decisive defeat as a wakeup call to a sleeping giant.
One ongoing argument about patents runs as follows: "Software patents [are] the only way a small business, or individual, for that matter, can leverage its creativity and hold sway over the big guys. Any new products that come into the market that embody new ideas, are usually introduced by small companies. The best way a small company can protect its new ideas is to patent them." (John Weirich, in comp.programming, writing before the Stac decision.)
The usual response to this position is that, despite many patents given to small individuals, the beneficiaries are the big corporations with large patent portfolios and deep pockets. Consider the inventor of the intermittent windshield wiper who, unlike many "small guys," actually received more than $10 million from the automakers for his invention. It cost him 20 years in legal battles, not to mention millions of dollars in lawyer's fees. Close to bankruptcy, he now considers his patent "the worst thing that ever happened to me" (New York Times, 12/14/91). Other examples abound. Philo Farnsworth, who invented some of the key technology behind the television, died in poverty while RCA surged on his invention. Dr. An Wang, an immigrant from Shanghai who held a key patent on computer memory, chose an unfavorable buyout deal from IBM rather than single-handedly face an army of lawyers.
But the Stac decision provided new fuel for this particular propatent argument. One participant exclaimed: "What was that again about the patent system being there for the big guy to crush the little guy? This looks like a prime example of the small guy beating the big guy by seeking and getting a patent for their invention!"
Yet, the facts in the case are not so clearly delineated.
First of all, one of Stac's two patents (#4,701,745, often referred to as the "Ferranti" patent) was not developed internally, but purchased by Stac about the time the suit was launched. (According to Stac president Gary Clow, negotiations had nonetheless been underway for a long time.) The actual inventor of that patent, John Waterworth, has been out of the picture for seven years. For its part, Microsoft purchased a similar data-compression patent. In both instances, the legal battle involved pieces of paper long since removed from the hands of the actual inventors.
Second, Stac Electronics by no means falls into the category of a "small guy" (although in comparison to Microsoft, everyone is small). Few small guys can spend $7 million on legal fees.
Third, the big guy did not really lose too much, except for face. Microsoft was sitting on $2.8 billion in cash at the time of the suit, so the settlement check may have come out of Bill Gates's traffic-ticket account.
Fourth, the patents involved do not seem particularly novel or "unobvious," key considerations for granting a patent. Regarding the Ferranti patent, Ross Williams, a university researcher on data compression and founder of the Internet newsgroup, comp.compression, writes: "I am completely convinced of the patent's triviality. In a nutshell, the patent covers the use of hashing to find matches in a sliding-input window. This is a fundamental and obvious technique in data compression and it is ludicrous that it should be anywhere but in the public domain. In fact, it is ludicrous that it should have ever even existed as a piece of intellectual property." (Williams was, by the way, recruited by Microsoft to serve as an expert witness.)
Fifth, Stac became a successful company not because of patent protection, but because of the excellence of its product in meeting customer needs. The company itself says, in its original complaint filed before the U.S. district court: "Largely as a result of the tremendous market acceptance of Stacker_Stac quickly grew from a company with 25 employees and revenues of less than $1 million in 1989, to a company with more than 200 employees and a market capitalization in excess of $150 million today." The product is "relied upon daily by more than four million computer users worldwide." The two Stac patents only appeared on the scene in 1991.
Sixth, Microsoft does not fall into the category of patent-bloated, innovationless firms (as some view IBM). Like most companies run by engineers and technical people rather than lawyers, accountants, or ex-soft-drink salesmen, leveraging its (small) patent portfolio has never been a central part of the company strategy. This is now likely to change, and that's why you should care about this legal decision.
Even before the verdict was reached, Greg Aharonian of Internet Patent News Service reported that Microsoft is hiring a phalanx of patent attorneys and supposedly has a goal of obtaining 100 software patents per year. A classic strategy for companies that can afford it is to build a web of patents enclosing strategic products. So even if one patent is invalidated or leaky, the surrounding others will hold fast.
Microsoft has turned web construction into a science, at least in the area of software development. For example, if you are trying to do leading-edge software development for desktops, you'll find it difficult to get by without a lot of Microsoft products: Their compiler is usually the only one that works with betas of new environments, their word processor is necessary to read the documentation (beta packages often come with minimal printed documentation, generally only online documents in Word format), their developer CD (MSDN) is essential for background technical information, and so on. This was not always so.
Historically, the company has been weak with version 1.0 of many of its products, but has the wherewithal and staying power to prevail with version N. Microsoft is a company that, like its chairman, is driven to win. As InfoWorld's Robert X. Cringely observes, "Bill doesn't cheat to win, but he is perfectly willing to win ungracefully." The Stac case is clearly a graceless loss for Microsoft, but the ultimate result may be rather different. Microsoft is a feared and relentless competitor in most areas where it has chosen to compete. The Stac decision will make Gates and Ballmer wake up and smell the legal briefs. Once that happens, the result will not likely please those patent advocates basking in the glow of the Stac decision.